MONTHLY LEGAL UPDATE – 07/2018: LEGAL UPDATE RELATING TO FINANCE AND CREDIT

 

1.        LEGAL DOCUMENTS ARE EFFECTIVE FROM 01/07/2018

1.1.  Circular No. 04/2018/TT-NHNN amending and supplementing certain articles of the Circular No. 08/2017/TT-NHNN dated 01/08/2017 of the Governor of the State Bank of Vietnam on banking supervisory processes and procedures

-           Name of legal document: Circular No. 04/2018/TT-NHNN issued on 12/03/2018 by the Governor of the State Bank of Vietnam amending and supplementing certain articles of the Circular No. 08/2017/TT-NHNN dated 01/08/2017 of the Governor of the State Bank of Vietnam on banking supervisory processes and procedures.

-            Effective date: 01/07/2018.

Some contents should be noted:
·           Firstly, adding the “Early intervention action” measure to remedial measures for banking supervision.

Specifically, Clause 1, Article 1 of Circular No. 04/2018/TT-NHNN amended and supplemented Article 17 of Circular No. 08/2017/TT-NHNN as follows: “Remedial measures for banking supervision include:

1. Recommendations and warnings.
2. Administrative penalties prescribed by laws.
3. Early intervention action.
4. Other banking supervisory actions that are suggested to competent authorities in accordance with laws.”

·           Secondly, stipulating the cases of “Early intervention action”.

Specifically, Clause 2, Article 1 of Circular No. 04/2018/TT-NHNN added Article 18a to Article 18 of Circular 08/2017/TT-NHNN as follows: “…on imposition of early intervention action on entities subject to banking supervision that fall into one of the situations referred to in Clause 1 Article 130a of the (amended and supplemented) Law on Credit Institutions…” (Clause 1, Article 130a of the Law on Credit Institutions: 1. In any of the following cases, the State bank will consider making early intervention in a credit institution that has not been placed under special control according to Article 145 of this Law:

a) The credit institution fails to maintain the solvency ratio specified in Point a Clause 1 Article 130 of this Law for 03 consecutive months;

b) The credit institution fails to maintain the capital adequacy ratio specified in Point b Clause 1 Article 130 of this Law for 06 consecutive months;

c) The credit institution is ranked below average according to the State bank.”)

 

1.2.  Circular No. 14/2018/TT-NHNN guiding the implementation of measures for managing monetary policy instruments to support credit institutions lending for agriculture and rural development

-            Name of legal document: Circular No. 14/2018/TT-NHNN issued on 29/05/2018 by the Governor of the State Bank of Vietnam guiding the implementation of measures for managing monetary policy instruments to support credit institutions lending for agriculture and rural development.

-            Effective date: 13/07/2018.

The content should be noted: To stipulate cases in which credit institutions shall apply the reserve requirements ratio for supporting deposits in Vietnam Dong lower than normal reserve requirements prescribed by the State Bank of Vietnam.

Specifically, Point a, Clause 2, Article 3 of Circular No. 14/2018/TT-NHNN stipulates: “The reserve requirements applied to the deposit in Vietnam Dong shall be lower than normal reserve requirements prescribed by the State Bank of Vietnam (hereinafter referred to as the State Bank) which vary according on each type of credit institutions and over time meeting the following criteria:

i) For the credit institution whose ratio of loan outstanding for agricultural, rural development over the average total loan outstanding (hereinafter referred to as the average credit ratio for agriculture and rural development) is 70% and higher: The reserve requirement is requested by such credit institution but not lower than 1/20 (one twentieth) of the reserve requirements applied to each deposit at such credit institution prescribed by the State Bank;

ii) For the credit institution whose the average credit ratio for agriculture and rural development is from 40% to less than 70%: The reserve requirement is requested by such credit institution but not lower than 1/5 (one fifth) of the reserve requirement applied to each deposit at such credit institution prescribed by the State Bank;”.

2.        Legal documents issued in June 2018

2.1 Circular No. 15/2018/TT-NHNN amendments to the Circular No. 22/2016/TT-NHNN dated 30/06/2016 by the Governor of the State Bank of Vietnam on purchase of corporate bonds by credit institutions and branches of foreign banks

-            Name of legal document: Circular No. 15/2018/TT-NHNN issued on 18/06/2018 by the Governor of the State Bank of Vietnam amendments to the Circular No. 22/2016/TT-NHNN dated 30/06/2016 by the Governor of the State Bank of Vietnam on purchase of corporate bonds by credit institutions and branches of foreign banks.

-            Effective date: 02/08/2018.

Some contents should be noted:

·           Firstly, (i) amending and supplementing the internal control over the corporate bond purchase of internal regulations on corporate bond purchase and (ii) adding content related to the regulation of potential risk areas and credit policies, investment in the contents of internal regulations on corporate bond purchase.

Specifically, Clause 1, Article 1 of Circular No. 15/2018/TT-NHNN amended and supplemented Clause 2, Article 3 of Circular No. 22/2016/TT-NHNN as follows: “Amendments to Point d and addition of Point đ to Clause 2 Article 3:

d) Regulations on internal control of purchase of corporate bonds, especially bonds issued for implementation of programs/ projects in sectors posing potential risks according to the evaluation by credit institutions/ branches of foreign banks so as to discover risks or violations and ensure the recovery of corporate bond principals and interests (Point d, Clause 2, Article 3 of Circular No. 22/2016/TT-NHNN stipulates: “…2. The eligible credit institution must have a system of internal credit rating, including the credit rating of corporate bond issuers and issue an internal regulations on purchase of corporate bonds in accordance with this Circular and relevant law provisions, at least including:

…d) Internal control of purchase of corporate bonds.”)

đ) Specific regulations on sectors posing potential risks and credit/ investment policies in these sectors.”

·           Secondly, stipulating additionally the principle of buying corporate bonds of credit institutions and branches of foreign banks. 

Specifically, Clause 2, Article 1 of Circular No. 15/2018/TT-NHNN stipulates: “Addition of Clause 6 to Article 3 (Circular No. 22/2016/TT-NHNN):

6. Credit institutions and branches of foreign banks are not allowed to purchase corporate bonds issued for the purpose of restructuring debts of the issuer.”

·           Thirdly, abolishing regulations on corporate bonds purchased. 

Specifically, Article 2 of Circular 15/2018/TT-NHNN stipulates: “Article 4 of Circular No. 22/2016/TT-NHNN is abrogated” (Article 4 of Circular No. 22/2016 /TT-NHNN stipulates: “Types of corporate bonds permitted to be bought:

1. Bonds that are issued in accordance with provisions of laws on the issuance of corporate bonds.

2. Bonds that are issued in accordance with provisions of laws on public securities offering, except for the case prescribed in Clause 3 Article 6 of this Circular”)."